business news in context, analysis with attitude

Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week, evaluating the Walmart-Jet strategy, addressing uncharacteristic lethargy at Apple, and assessing the Amazon-Best Buy alliance.

And now, the Conversation continues…

KC: We had a story recently about how Jet’s site traffic was down about 60 percent last month, compared with Walmart;’s site traffic being up five percent … all of which seems to be related to the fact that Walmart seems to be devoting more resources to its own site and pulling them away from Jet … though Walmart argues that it is positioning Jet to focus on “key urban markets,” like New York, where it doesn’t have stores.  My first question is whether you think such a bifurcated approach makes sense, and if there is a lesson there for Walmart’s competitors.  And second, I wonder what you think about my speculation that we may soon see a Jet store opened in one of these urban markets, in which Walmart can experiment and push the envelope a bit.

Tom Furphy:
Given the overall shift in shopping toward ecommerce, with shoppers continuing to move purchases online in droves, a 60% drop in traffic is abysmal. A 5% increase in traffic means that you’re losing share of traffic. In addition to Jet, I understand that traffic is down across the other sites that Walmart has acquired such as Modcloth and Bonobos. That seems to indicate that traffic is not a priority for these sites and/or customers have decided to shift toward Walmart, with the latter not likely given a mere 5% increase in traffic.

I’m not sure that a deliberate strategy to pull resources and focus away from these curated sites is a good idea. What made each of them successful, although was certainly still far short of successful when acquired, was their unique assortment, service and merchandising. If they were showing growth and moving toward profitability, a plan to shift that volume to the core Walmart platform is risky.

I think Walmart positioning Jet to focus on key urban markets could make sense. They don’t have a current store presence in these markets, nor do they have good local ecommerce distribution. So using Jet as a way to focus on these markets, with their own merchandising strategy, unique merchant partners and local fulfillment centers could work. But why create another brand? Does Jet really have an established customer base in these urban markets? If so, it could be a brand to build upon. However, traffic trends would suggest not.

If Walmart’s rationale is to allow Jet to stand on its own to focus significant resources in creating new, urban, shopping experiences, especially ones that might include stores, I applaud them. Having a sandbox to experiment is a good lesson for any retailer. Innovating for customers takes real commitment. It’s not about incremental tweaks to existing practices. We see Walmart taking big swings across their business now. That’s the real lesson for others.

KC: We’ve also had a couple of stories about Apple’s HomePod, which seems like it is an hour late and a dollar short when it comes to the smart speaker business.  I figure that if they can’t attract an Apple junkie like me - not only am I completely wired into the Amazon/Alexa system, but they haven’t made a compelling case for why I should switch or even just test the HomePod - then they’re in serious trouble.  But it also occurs to me that this could illustrate something else - that the innovation window these days may only open for short periods of time, and that when competitors miss the moment, more than ever they may find themselves at a disadvantage.

The game is basically over in the smart speaker market. Amazon and its closed system has a massive lead, with Google and number of partners trying to compete with their open systems. With roughly an 80/20 market share between these two platforms, tens of thousands of skills, and now a majority of US households that own one of them, there is very little room for new entrants in the market.

We’ve all heard of Moore’s Law, where computer processing power doubles every 18 months. That has held up amazing well over several decades. I also think that there’s a Moore’s Law of innovation. Given the speed of technology advancements, the agility of leading businesses and a new ecosystem approach to market, we now see innovations coming at us far more quickly than in the past.

So, I think you’re right. The moment to get innovations right is tight. And the ability to respond to innovations with a competitive option is very limited. The innovations that win will be those that are well thought out, drive a value that is substantially better than can be found today and can be rolled into the market quickly, with stickiness.

Amazon wins across the board in bringing these innovations to market. The smart speaker market was Apple’s to win. But Amazon developed a strategy before the market was ready, innovated like crazy to build a great product, then got it to market well ahead of Apple. Google was a nimble 2nd mover. That’s exactly what Amazon is doing in packaged goods and grocery ecommerce. The things they’ve done around auto replenishment, voice ordering, local fulfillment and now stores sets them up to take massive share. Who will be the nimble second movers in packaged goods and grocery?

KC: Finally, I’m wondering what you think of the deal that Amazon and Best Buy made to team up to “bring the next generation of Fire TV Edition smart TVs to customers in the United States and Canada.”  Not only will Best Buy have an Amazon TV section in its stores, but it also apparently now also will start selling on Amazon.  What does this tell us about both retailers’ intentions and plans?

Amazon and Best Buy are both ecosystem retailers that can benefit from participating in each other’s ecosystem. I think this is a great move for both companies.

Amazon knows that store experiences are valuable across many categories. A partnership with Best Buy gives them a good leg into electronics store experiences, with scale, without having to build or acquire stores of their own.

Best Buy wins a great source of store traffic thanks to 100 million Prime customers all of whom can benefit from Fire TVs and other Amazon devices found in their stores. It also enables Best Buy to neutralize the potential that Amazon may look to open an extensive range of its own electronics stores.

And Best Buy opening on the Amazon platform provides them a source of ecommerce traffic that is large and complementary to their current website traffic. Best Buy has held its own with its combination of stores as showrooms, a solid website and app, and a very good click and collect experience. Adding a presence on Amazon makes good sense.

Both ecosystems are strengthened. A win for both companies.

The Conversation will continue…

KC's View: